We are an independent, advertising-supported comparison service. Our objective is to empower you to make confident financial decisions by giving you access to interactive tools and financial calculators, publishing original and unbiased content, and allowing you to conduct free research and information comparisons.
Issuers that Bankrate has partnerships with include American Express, Bank of America, Capital One, Chase, Citi, and Discover, among others.
The debt-to-income ratio (DTI) is a critical factor that lenders consider when evaluating your mortgage application. It reveals the percentage of your monthly income that goes towards debt repayment, including housing expenses like mortgage payments, property taxes, and homeowners insurance. DTI plays a significant role in determining your eligibility for a mortgage and the interest rate you’ll be offered.
What is a Good DTI Ratio for a Mortgage?
Generally, lenders prefer a DTI ratio of 36% or lower. This means that your total monthly debt payments, including housing expenses, should not exceed 36% of your gross monthly income. However, some lenders may accept higher ratios, up to 43% or even 50% in exceptional cases.
Factors Influencing DTI Requirements
Several factors can influence the DTI requirements for a mortgage. These include:
- Loan type: Conventional loans typically have stricter DTI requirements compared to government-backed loans like FHA and VA loans.
- Credit score: Borrowers with higher credit scores may qualify for a higher DTI ratio.
- Down payment: A larger down payment can help offset a higher DTI ratio.
- Debt-to-asset ratio: This ratio compares your total debt to your total assets and provides a broader picture of your financial health.
Calculating Your DTI Ratio
To calculate your DTI ratio, follow these steps:
- Add up all your monthly debt payments: Include housing expenses, car loans, student loans, credit card payments, and any other recurring debt obligations.
- Divide your total debt payments by your gross monthly income: This is your pre-tax monthly income.
- Multiply the result by 100: This will give you your DTI ratio as a percentage.
For example, if your monthly debt payments are $2,500 and your gross monthly income is $7,000, your DTI ratio would be 35.71% ($2,500/$7,000 x 100).
Strategies to Improve Your DTI Ratio
You can improve your DTI ratio if it’s higher than what lenders prefer by doing the following:
- Pay off debt: Prioritize paying off high-interest debts first, as they have the most significant impact on your DTI ratio.
- Increase your income: Look for ways to earn additional income, such as taking on a side hustle or negotiating a raise.
- Reduce your expenses: Cut back on unnecessary expenses to free up more money for debt repayment.
- Consider a co-signer: If you have a co-signer with a good credit score and low DTI, they can help you qualify for a mortgage.
Understanding your DTI ratio and taking steps to improve it can significantly increase your chances of mortgage approval and secure a favorable interest rate. Remember, a lower DTI ratio indicates a lower risk for lenders, making you a more attractive borrower
Why does your debt-to-income ratio matter to lenders?
Lenders assess your DTI ratio to determine if you can comfortably afford to make monthly mortgage payments. A mortgage lender may view you as too risky to extend a home loan to if your monthly debt repayments already consume a significant portion of your income, even with a good credit score, steady income, and an outstanding payment history. There are two types of DTI ratios that lenders look at.
How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We always work to give customers the professional guidance and resources they need to be successful on their financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
By outlining our revenue streams, we are open and honest about how we are able to provide you with high-quality material, affordable prices, and practical tools.
Bankrate. com is an independent, advertising-supported publisher and comparison service. We receive payment when you click on specific links that we post on our website or when sponsored goods and services are displayed on it. Therefore, this compensation may affect the placement, order, and style of products within listing categories, with the exception of our mortgage, home equity, and other home lending products, where legal prohibitions apply. The way and location of products on this website can also be affected by other variables, like our own unique website policies and whether or not they are available in your area or within your own credit score range. Although we make an effort to present a variety of offers, Bankrate does not contain details about all financial or credit products or services.
- The debt-to-income (DTI) ratio is a crucial determinant of mortgage approval.
- The lower the DTI for a mortgage the better. For most lenders, a DTI ratio of no more than 36% is ideal.
- Obtaining a loan with a debt-to-income ratio higher than 50% is extremely difficult, though there are some exceptions.
When you apply for a mortgage, the lender looks at your debt-to-income ratio (DTI). This figure compares how much money you owe (your debts) to how much money you earn (your income). It’s critical to verify your credit score and understand your debt-to-income ratio prior to applying for a home loan. You should also know what percentage lenders look for to help increase your approval odds.
High Debt to Income Ratio Mortgage | Top 4 Options
FAQ
Can you get a mortgage with 55% DTI?
What is the highest debt-to-income ratio to buy a house?
What is too high for debt-to-income ratio?
What is the maximum debt ratio for a mortgage?
What is a good debt-to-income ratio for a mortgage?
Debt-to-Income Ratio for a Mortgage: What Is a Good DTI? A good DTI ratio to get approved for a mortgage is under 36%, but it’s possible to qualify with a higher ratio.
What is a debt-to-income ratio?
Debt-to-income ratio (DTI) is a comparison between your monthly debt payments and your gross monthly income. Your DTI helps a mortgage lender determine how much cash you have left over each month and how large of a mortgage payment you can afford. What is a good debt-to-income ratio?
What is a low debt-to-income ratio?
The debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments and is used by lenders to determine your borrowing risk. A low debt-to-income (DTI) ratio demonstrates a good balance between debt and income.
What is a high debt-to-income ratio?
Your debt-to-income ratio, or DTI, is as important as your credit score and job stability to qualify for a home loan. A high DTI was the most common primary reason lenders denied mortgage applications in 2022, according to a NerdWallet analysis of the most recently available federal mortgage data. What is debt-to-income ratio?